10-year Treasury yield soars after jobs report blows past expectations

U.S. Treasury yields jumped Friday as investors digested a better-than-expected September jobs report.

The 10-year Treasury yield rose more than 11 basis points at 3.961%. The yield on the 2-year Treasury was more than 17 basis points higher at 3.888%.

Yields and prices have an inverted relationship. One basis point equals 0.01%.

Nonfarm payrolls grew by 254,000 in September, significantly exceeding the Dow Jones consensus estimate of 150,000.

The report points to a solid economy, but it also signals to the market that the Federal Reserve is more likely to move forward with smaller rate reductions ahead. The CME Group’s FedWatch tool shows traders are now pricing in an 91% chance of a quarter percentage point rate cut in November. The central bank lowered rates by a jumbo-sized half percentage point in September.

“I think we are moving back to perhaps a 25 basis point rate cut instead of 50 for November,” Saira Malik, head of Nuveen equities and fixed income, said Friday on CNBC’s “Squawk Box.”

Since the Fed cut rates on Sept. 18, the 10-year Treasury yield has actually jumped. The rate was around 3.6% the day before the Fed cut and now was approaching 4% with Friday’s increase.

The September jobs reading comes after Federal Reserve Chair Jerome Powell emphasized that the central bank has conducted a “recalibration” of its policy stance in order to focus on supporting the labor market and the economy as well as inflation. That was given as justification for the jumbo 50-basis-point interest rate cut carried out by the Fed last month.

Powell on Monday suggested it may be appropriate to cut rates at both meetings in smaller, 25-basis-point increments, but stressed the Fed was not on a “preset course.”